Home / News / Russia / Russian metallurgists stop production due to the strengthened ruble

Russian metallurgists stop production due to the strengthened ruble

Russia / Main
7 260
0

Russian metallurgists have warned the government about losses and a forced reduction in production if taxes on the industry are not reduced and the ruble remains high. A strong national currency has a negative impact on export-oriented industries, which include Russian metallurgy.

Russian metallurgists stop production due to the strengthened ruble

The Russian Steel Association, which includes Russia's largest iron and steel companies Severstal, Novolipetsk Iron and Steel Works (NLMK), Magnitogorsk Iron and Steel Works (MMK) and Evraz, sent letters to government departments last week stating about the deteriorating situation in the industry.

Russian Steel Executive Director Alexei Sentyurin told RBC that due to EU sanctions, Russian metallurgists redirected supplies mainly to China and Turkey. Customers there demand discounts compared to European prices. For slabs - blanks for the production of sheet steel - discounts reach 30%, or $ 250 per ton. With the high exchange rate of the ruble, the sale price of slabs is almost equal to or even lower than the cost price, Sentyurin said, adding that the cost of freight from Vladivostok to China has increased by 2-2.5 times.

A source in one of the metallurgical companies confirmed to Forbes that in May, the loss from the sale of a ton of slabs to China, where the main export went, taking into account freight costs at a rate of 62 rubles per dollar, amounted to approximately 16,000 rubles: at a cost of 40,000 rubles per ton, the export price of slabs was 24,500 rubles per ton. A representative of Severstal explained to Forbes that slabs account for more than half of all exports of Russian metal products. Formally, they are not subject to EU sanctions, but since the controlling shareholders are under sanctions, most metallurgists cannot supply this product to the EU countries either. The share of the Asian direction in the export deliveries of metallurgists now exceeds 50%, said a representative of Severstal.

Boris Krasnozhenov, Head of Analytical Research at Alfa-Bank, notes that the sanctions hit Severstal first of all, while other steel companies were less affected. According to him, NLMK exports mainly semi-finished products that are not subject to sanctions for its further processing at European facilities. Evraz, according to the expert, has historically been export-oriented to Asia, and the company almost does not produce flat products that are subject to restrictions. The share of exports in MMK's sales structure is 20%, which is significantly less than that of other Russian companies.

“Unfortunately, the current exchange rate severely limits us in export deliveries, making them ineffective,” says Alexander Shevelev, General Director of Severstal, in a comment sent to Forbes. According to him, Severstal is in the process of reorienting exports to Southeast Asia, North Africa and India and hopes that the authorities will take appropriate measures to bring the ruble to levels that allow exporters to remain competitive.

“Russia produces 77 million tons of steel, of which almost half is exported,” explains Veles Capital analyst Vasily Danilov. “In the context of the closure of the European market and a significant drop in domestic consumption, an excess of metal has arisen, which is partially redirected to other regions, primarily to Asia.”

"Part of the equipment is already idle"

Not wanting to work at a loss, metallurgists begin to reduce production. Severstal, NLMK, MMK and Evraz refused to publish reports for the first quarter of this year. But, according to the World Steel Association, steel production in Russia in January-April decreased by 0.7% compared to the same period last year, to 25.1 million tons. In April, production increased by 0.6% compared to April 2021, to 6.4 million tons, although it decreased compared to March, when production was estimated at 6.6 million tons.

A representative of Severstal told Forbes that the situation with orders is extremely tense. The company plans the operation of the units based on the load, including adjusting it by shifting the repair program, but some of the equipment is already idle.

“The plant's profitability has fallen to historical lows that were observed during the crisis years, now it is at a level close to zero,” a representative of MMK told Forbes. According to him, in the current conditions, the plant expects to reduce the capacity utilization in June by more than 40%, to 550,000 tons per month from the usual production level of about 1 million tons. The company also cut iron production by 30% by shutting down two of its eight blast furnaces, the MMK spokesman added.

What metallurgists ask for

Metallurgists ask to abolish the excise tax on liquid steel, reduce the mineral extraction tax (MET) and weaken the ruble. Otherwise, manufacturers will incur losses and reduce production volumes - which some of them are already doing, RBC Sentyurin said.

Russian manufacturers have been sounding the alarm for a long time. Prospects for the development of the country's metallurgical complex were discussed at a meeting on April 20, which was held by President Vladimir Putin. On the eve of the meeting

Forbes
Сomments
Add a comment
Сomments (0)
To comment
Войти с ВК Войти с ФБ Войти с Яндекс
On this topic
Recommended:
Sign in with:
Войти с ВК Войти с ФБ Войти с Яндекс